Task Force Exposes Draft Of Annuity Reserving Guidelines

Allen Elstein, a Connecticut regulator, said an Actuarial Guideline VACARVM exposure draft should include a strong standard scenario provision.

The current guideline draft shifts away from use of traditional static reserving formulas, toward use of modern statistical techniques that forecast how a product might perform in hundreds or thousands of different hypothetical scenarios.

Advocates of the use of a standard scenario, first proposed by the New York State Insurance Department, say the standard scenario would ensure a minimum degree of reserving safety, by requiring a company to have enough resources to cope with that scenario.

Insurers have argued the standard scenario approach is too conservative and would require unnecessary levels of reserving.

Tom Campbell, a life actuary with Hartford Life Insurance Company, Simsbury, Conn., and chair of the variable reserve working group at the American Academy of Actuaries, Washington, said members of the LHATF should communicate their belief that variable annuities with guarantees are "toxic" if they really believe that to be true.

If members of the LHATF do not believe that variable annuities with guarantees are toxic, they should communicate that, Campbell said.

John Bruins, a life actuary with the American Council of Life Insurers, Washington, said the ACLI views variable annuities with guarantees as "reasonable but risky products in which we are looking to establish reasonable reserves. If LHATF thinks that these products are toxic, then we'd like to hear that."